Public Works Trust Fund lives on

The 2017 session may prove to be a turning point for the Public Works Trust Fund (PWTF). Under almost continual assault since 2013, this year the Legislature stands poised to make the first investment in a loan list since the 2011-13 biennium – with one major catch. AWC went into the 2017 session knowing that we needed to change our approach on the PWTF, or risk another biennium with no loans issued, or worse, the end of the program altogether.

Rather than focusing on extolling the virtues of the program as it has always been, we underwent a difficult set of conversations within the city family and with other stakeholders to come to terms with what the program may need to look like moving forward. We challenged ourselves to respond to the critiques we were hearing from some legislators, particularly the Senate, and looked for opportunities to respond to those concerns. We chose to focus on retaining the loan repayments and the remaining Real Estate Excise Tax (REET) revenues instead of continuing to fight for the return of all the tax revenues that have been diverted from the PWTF. This was a difficult conversation amongst the membership and the AWC Board of Directors, because there is huge support for this program and the principle that the dedicated revenue streams put in place in the 1980s to fund the PWTF should continue to be used for their original intent.

AWC, the Public Works Board, and other public infrastructure owners and users brought forward and supported HB 1677 which instituted some very significant reforms to the PWTF program. The bill creates a dual-tiered system where cities with rate bases larger than 50,000 residences receive a less-generous interest rate subsidy than their smaller peers. The bill gives the Public Works Board new authority to require upfront value planning and reaffirmed the expectation that asset management and rate structures would be in place to ensure a good long-term investment by the state.

Democrats and Republicans in The House of Representatives rallied around the program and our proposed reforms, putting together a bipartisan work group of Representatives Doglio (D-Olympia), Koster (R-Arlington), Kraft (R-Vancouver), and Ryu (D-Shoreline) to refine the proposal brought forward by the stakeholders. The group did a great job listening to all parties and brought their own ideas to the table, perhaps most impactful was a proposal to remove the requirement that the Legislature approve a specific project list. This change will allow the PWTF to more nimbly provide resources at the right time during the project development cycle, and to better leverage other funding sources.

As the final budget negotiations commenced, the House brought forward HB 1677 and full funding for the PWTF, while the Senate’s initial approach was to completely eliminate the program, divert all revenues permanently to education, and in its place create a program to facilitate local government access to the private capital markets. To their credit, when the Senate leaders saw how well the public works reform bill spoke to their concerns they were receptive to continuing the program under those conditions. At that point the negotiations began to focus on the disposition of the public works revenue streams.

Since 2013, almost all the tax revenues that had gone into the PWTF have been diverted to the state’s education funding account. Those revenues were scheduled to come back to the PWTF in 2019, but that was always highly unlikely in an environment where the Legislature was entering multiple special sessions to find even more resources to fund K-12 education and meet their McCleary obligation. Ultimately the deal that was reached extended the revenue diversions another four years, but did not permanently sweep the remaining portion of REET revenues that still flow into the account, and did not permanently redirect the loan repayment resources. The budget does transfer all the revenues in the PWTF to fund education, but the capital budget is poised to replace about half of those dollars with bond proceeds to allow the program to continue forward. While this somewhat undermines the revolving structure of the account, and is questionable long-term budgeting – the key takeaway is that the program lives to fight another day. This is an outcome that was very much in question coming into the 2017 session.

The unfortunate ending to this story, as it currently stands, is that the Legislature departed Olympia without passing a biennial capital budget because of a dispute over an unrelated water rights issue. While the final negotiated capital budget is poised to implement what is described above, we won’t achieve that outcome until the budget is actually passed. AWC remains actively involved in trying to bring about that resolution, but at this point the timing is unclear.

Public works contracting

As is typical in any legislative session, the Legislature considered a number of public works contracting bills during the 2017 session. Most of the bills had little to no impact on cities. However, there were a few exceptions.

The issue that most dominated city interests was the resurrection of the Mike M. Johnson Supreme Court case. HB 1574/SB 5788 would have rolled-back significant protections for local governments in contract claim notification processes. We were successful in fending off this legislation but fully expect the issue to return in 2018.